The Atlanta Fed uses the US Department of Housing and Urban Development's Fair
Market Rent formula in its CLIFF tool calculations.
As the nation observed Fair Housing Month and the 55th anniversary of the passage of the Fair Housing Act in April, the Atlanta Fed was updating its Career Ladder Identifier and Financial Forecaster (CLIFF) tool, which helps determine if a person's pay raise could come at the cost of public benefits.
The Fair Housing Act of 1968 and housing assistance programs are federal efforts that share the goals of making decent housing available and affordable for all. The law expanded prohibitions on discrimination in housing, while the federal housing assistance programs help eligible low-income households access safe, decent dwellings.
Revisiting a widely used formula
The US Department of Housing and Urban Development (HUD) uses the Fair Market Rent (FMR) formula in part to determine the amount of financial aid eligible households receive to help with renting a dwelling and paying for utilities other than a telephone. Terms call for a dwelling that is moderately priced by recent standards, decent, and safe, and with reasonable amenities in a local housing market.
Atlanta Fed researchers use the FMR formula in their adjustments to the CLIFF tool, which has received positive reviews. In late 2021, they noticed that the formula was not keeping pace with rapidly rising housing costs, which complicated the Bank's efforts to incorporate cost-of-living factors into the CLIFF tool. Around the same time, HUD noticed that holders of housing vouchers were not able to use them because their value had not kept pace with rapid increases in housing costs—another effect of not updating the FMR formula.
"Inaccurate FMRs directly affected our county-level estimates of the overall cost of living for different family types by underestimating the actual cost of housing," researchers noted in "Keeping Up with Rent: Recent Rent Hikes and Their Impact on Affordability Standards." Released March 28 by the Atlanta Fed, the research was conducted by Elias Ilin, a former Atlanta Fed assistant policy adviser and economist; Sarah Stein, adviser on the Community and Economy Development (CED) team; Edgar Reyes, an economic research analyst; and Grace Meagher, CED research analyst.
As a result of its mandatory annual review of the FMR formula, HUD unveiled an updated formula on September 1, 2022. In releasing the update, the department announced two major points regarding the formula that took effect October 1, 2022, (the start of the federal fiscal year):
- The FMR formula would increase by an average of about 10 percent "[b]ecause rents have risen so quickly recently, voucher holders are increasingly unable to find units available to rent with in HUD payment standards."
- Private sector, real-time rent data were added to the 2023 formula "to address a temporary data availability challenge and to align with market conditions. The basic methodology that HUD uses to estimate FMRs remains the same." The Atlanta Fed report's outlook on the revised formula is positive. The researchers determined that HUD's formula "can more accurately reflect rent prices in more volatile markets, providing more reliable data to cost-of-living and benefits eligibility calculators that use FMRs to estimate housing cost."
Updated FMR formula has far-reaching effects
These changes intend to aid the 2.3 million American families enrolled in the Housing Choice Voucher Program, the federal government's major program for providing housing assistance, plus more than 840,000 residents of public housing. Another HUD program reliant on the FMR formula supports housing for unhoused people through the Moderate Rehabilitation Single Room Occupancy Program, the Continuum of Care program, and other housing initiatives.
The Atlanta Fed report observes that the updated FMR could also benefit landlords and other beneficiaries of HUD-funded housing programs because HUD uses the FMR formula to determine fees paid for performance-based contract administration in multifamily housing of Section 8 contracts. The report concludes with the observation that a potential retrospective assessment of the effectiveness of the 2023 FMR methodology "will reveal how it performs against the previous methodology."
The nation's marking of April as Fair Housing Month recognizes the April 11, 1968, enactment of the federal Fair Housing Act as Title VIII of the Civil Rights Act of 1968. It expanded prohibitions on the "sale rental, and financing of housing based on race, religion, national origin, sex, (and as amended) handicap and family status," according to a HUD report.
The 1968 act was the last of three major pieces of civil rights legislation of the era. It followed the Civil Rights Act of 1964, which made employment discrimination illegal and prohibited discrimination in public places, and the Voting Rights Act of 1965, which outlawed discriminatory voting practices.
David Pendered
Staff writer for Economy Matters